SBI Cards Public Offer To Open On March 2. Should You Invest?
SBI Cards and Payment Services, the credit card arm of State Bank of India (SBI) will unveil its Rs 9,000 crore initial public offering (IPO) for subscription on March 2. The bidding process will close on March 5. SBI Cards is a subsidiary of SBI and the second largest credit card issuer in India, with a market share of 18 per cent. It was launched by State Bank of India and GE Capital in October 1998. In December 2017, State Bank of India and The Carlyle Group acquired GE Capital's stake in the company. SBI holds 76 per cent in SBI Cards and the remaining stake is held by Carlyle Group. SBI Cards is headquartered in New Delhi and has a presence in 130 cities throughout the country.
SBI Cards IPO: Here are details of price band, issue size and brokerage calls for Initial Public Offering
SBI Cards IPO Price Band
The Initial Public Offer (IPO) of SBI Cards will be available in the price band of Rs 750-755 per share, according to a regulatory filing by State Bank of India. A discount of Rs 75 per share will be offered to the "eligible employees" of the bank. The shares will be available for bidding in lot size of 19 shares and multiples of 19 thereafter. At the higher end of price band, the lot size will amount to Rs 14,345.
SBI Cards IPO Issue Size
The SBI Cards IPO comprises a fresh equity issue worth Rs 500 crore and an offer for sale of up to 130,526,798 equity shares. This will include up to 37,293,371 share sale by SBI and up to 93,233,427 shares on offer by Carlyle Group, the company had earlier said in its prospectus.
Should you invest in SBI Cards IPO?
"SBI Cards is the second largest credit card issuer in India both in terms of numbers of credit cards outstanding and amounts of credit card spends. SBI Cards is also the largest pure-play credit card issuer in India and has deep expertise in India's credit card market, as a result of operating history exceeding 20 years. Its ability to commit almost exclusively to its core credit cards business strengthens its market expertise, focuses its management's attention and improves its customer relationships," brokerage firm HDFC Securities said in an IPO note.
"SBI Cards has a professional and experienced management team with a deep level of expertise in the credit card industry and overall financial services industry. It's managing director and chief executive officer, Mr Hardayal Prasad, has over 36 years of experience in the financial services industry. This deep industry expertise provides its leadership team with the vision to steer the long-term strategic direction of its business," HDFC Securities further added.
Angel Broking, in an IPO note, said, "At the upper end of the price band, SBI Cards is valued at 45.5x of 9MFY2020 annualised earnings. Although the valuations are a bit on the higher side, we are positive on future outlook of the company given favorable industry scenario, large untapped SBI Bank customers and strong financial track record. We recommend a 'Subscribe' to the issue."
Umesh Mehta, Head of Research, Samco Securities, said, "The SBI Cards is here and we are all for investors to subscribe to this Rs 10354.77 crore IPO. This company has significantly gained public interest and justifiably so as it is the second largest credit card issuer with a market share of 18.10 per cent, only after HDFC Bank with a market share of approximately 27 per cent. Additionally, it is the most profitable vertical of SBI Bank. Financially as well as operationally, the company has delivered robust performance in the past three years. The issue premium is hence justified, given the due respect to visible growth opportunity of the industry in its entirety."
Yes Securities, in an IPO note, said, "SBI Cards is a solid business having a large multifaceted distribution franchise, sophisticated and scalable core technology systems and a mature and capital efficient revenue profile. Being a proxy consumption play, we would prefer P/E as a valuation basis; wherein SBI cards is being offered at 45xFY20 (post-money) and 26xFY22 multiples. A 25 per cent growth rate appears self-sustainable on current RoE and dividend pay-out. Asset quality cycle has been benign for nearly a decade now; thus, any disruption in the credit cost cycle could significantly impact valuation and sustainable growth rate.
Emkay Research, in an IPO note, said, "The Indian credit card industry remains significantly under-penetrated (4 cards/100 people Vs >30 cards/100 people in developed economies). SBI Cards IPO, at a higher band of Rs755/market cap of Rs 709 billion, implies a premium valuation (PE of 45x based on 9MFY20 annualized EPS) compared with developed and developing economy peers that are trading around 9-18x and even some retail-oriented high-growth Indian banks/NBFCs that are trading around 20-47x PE. We believe that SBI Cards, as the second largest pure-play credit card player with a strong parental lineage, is well-positioned to maintain strong growth trajectory and sustainably superior return ratios, thereby commanding premium valuations."
